Tax-Managed Value Fund (A) Share
Class

A

• A
• C
• I

A Word On The Markets  as of Mar 31, 2013

Global equity markets surged ahead in the first quarter of 2013, as several major stock indexes set or neared record highs. Positive economic trends overcame headwinds ranging from recent tax hikes to renewed turmoil in Europe. In the U.S., encouraging news on the jobs front helped drive share prices upward. Unemployment fell to 7.7% in February, its lowest level in more than four years, as employers added 236,000 jobs. In addition, surprisingly strong U.S. retail sales helped eased concerns that consumers might spend less amid higher taxes and still-high energy prices. In the housing market, rising demand and more limited supply lifted home values, helping to boost consumer confidence and spending.

Mandatory government spending cuts under the so-called “sequester” barely hampered U.S. stocks' advance. Equities continued to draw support from the U.S. Federal Reserve, which reiterated its intention to maintain stimulus policies until its unemployment and growth targets are met. Global equities also demonstrated a degree of resiliency, with European stocks declining only modestly in response to Cyprus’ banking crisis in late March.

Reflecting the breadth of the first-quarter rally, major stock market indexes recorded strong gains across geographies and equity categories. In the U.S., the Dow Jones Industrial Average⁹ returned 11.93% and hit an all-time closing high during the quarter. The broader S&P 500 Index¹⁰ also reached a new high on the quarter’s final trading day, rising 10.61% for the period. Globally, the MSCI EAFE Index¹¹ gained 5.13%. Small-cap stocks generally fared better than their large-cap counterparts during the quarter. Among large caps, value stocks outpaced growth stocks, while the reverse was true among small caps.

Performance Summary 

Eaton Vance Tax-Managed Value Fund (the Fund) underperformed its benchmark, the Russell 1000 Value Index (the Index),² for the quarter ended March 31, 2013, returning 10.37% for Class A shares at net asset value versus the Index’s 12.31% return.

• The Fund’s underperformance versus the Index was primarily due to unfavorable stock selection results. The overall effect of sector allocation on the Fund’s relative performance was essentially neutral.
• Among U.S. large-cap equities, value stocks generally outperformed their growth counterparts during the quarter. Within the large-cap value space, the smallest-cap stocks outperformed the largest-cap stocks, creating a headwind to the Fund’s performance relative to the Index.
• All 10 Index sectors delivered positive returns for the quarter, and the Fund likewise posted positive returns in all 10 sectors. The best-performing Index sectors were information technology, consumer staples and health care, while the weakest were materials, telecommunication services and energy.

Contributors 

Factors contributing to the Fund’s relative performance compared to the Index during the quarter:

• The Fund’s results in the health care, consumer discretionary and materials sectors contributed positively to overall performance relative to the Index, with the strongest contribution coming from favorable stock selection in consumer discretionary.
• At the individual stock level, the Fund’s top performance contributor was an overweight position in downstream energy company Phillips 66, which outperformed during the quarter.
• Other notable individual performance contributors included biopharmaceutical firm Gilead Sciences (an out-of-Index holding) and energy company Marathon Petroleum, both of which outperformed during the quarter.
• The Fund’s underweight in energy giant ExxonMobil and its avoidance of Bank of America also helped lift performance versus the Index, as both stocks underperformed during the quarter.

Detractors 

Factors detracting from the Fund’s relative performance compared to the Index during the quarter:

• Unfavorable stock selection in the information technology sector detracted the most from the Fund’s performance versus the Index during the quarter, while stock selection in several other sectors detracted to a lesser degree.
• Within information technology, a sizable out-of-Index position in mobile devices leader Apple was by far the Fund’s biggest individual performance detractor.
• Further detracting from relative performance in information technology, the Fund had no exposure to computer and printer maker Hewlett-Packard, which performed strongly during the quarter.
• Other notable individual performance detractors included residential real estate investment trust (REIT) AvalonBay Communities and office REIT Boston Properties.

Investment Outlook And Fund Positioning 

To some extent, the powerful equity market rally during the first quarter reflects mounting investor confidence in longer-term economic prospects. In contrast to the persistent volatility of recent years, markets worldwide have been demonstrating a greater ability to absorb the impact of periodic macro crises such as Cyprus – a possible sign of investors’ optimism that the global economic recovery is on firmer footing. The U.S. economy appears to be in better shape than much of the rest of the world, but is still growing at a fairly slow pace.

Ongoing commitment by the Federal Reserve and other central banks to keep easy-money policies in place should continue to support economic growth and equity markets. However, we believe the pace of the rally is likely to slow in the coming weeks and months. Investors will be keeping a close eye on corporate earnings trends, upcoming U.S. budget negotiations and further developments out of Europe. These potential bumps in the road may bode well for stock pickers, as investors are likely to become more interested in company-specific fundamentals.

At quarter-end, the Fund’s largest sector overweights versus the Index were in health care and industrials, while its largest underweights were in materials and information technology.

As always, we are committed to identifying companies with strong franchises and growth prospects and intend to maintain our discipline of investing in such companies only at what we regard as attractive valuations.

The views expressed in this report are those of portfolio manager(s) and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This commentary may contain statements that are not historical facts, referred to as "forward looking statements". The Fund's actual future results may differ significantly from those stated in any forward-looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of Fund shares, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the Fund's filings with the Securities and Exchange Commission.

Portfolio profile subject to change due to active management. Percentages may not total 100% due to rounding. Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings.

About Risk 

Fund share values are sensitive to stock market volatility. Investments in foreign instruments or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical or other conditions. Market conditions may limit the ability to generate tax losses or to generate dividend income taxed at favorable tax rates. The Fund's ability to utilize various tax-managed techniques may be curtailed or eliminated in the future by tax legislation or regulation. No Fund is a complete investment program and you may lose money investing in a Fund. The Fund may engage in other investment practices that may involve additional risks and you should review the Fund prospectus for a complete description.

No attribution information is available.

Portfolio profile subject to change due to active management. Percentages may not total 100% due to rounding. Fund invests in an affiliated investment company (Portfolio) with the same objective(s) and policies as the Fund. References to investments are to the Portfolio's holdings.

About Risk 

Fund share values are sensitive to stock market volatility. Investments in foreign instruments or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical or other conditions. Market conditions may limit the ability to generate tax losses or to generate dividend income taxed at favorable tax rates. The Fund's ability to utilize various tax-managed techniques may be curtailed or eliminated in the future by tax legislation or regulation. No Fund is a complete investment program and you may lose money investing in a Fund. The Fund may engage in other investment practices that may involve additional risks and you should review the Fund prospectus for a complete description.